The benefit of adopting an inflation-control target i.is that the Reserve Bank's policy actions are clearly understood in financial markets.
Ii)is that it provides an anchor for future expectations of inflation.
Iii)is that Reserve Bank policy actions are hidden from financial markets.

Question

Quizplus · Accepted Answer

Option i is correct as having a transparent inflation-control target allows financial markets to anticipate the actions of the Reserve Bank, which can help to reduce volatility. Option ii is also correct as an inflation-control target provides a clear framework for managing and maintaining inflation expectations. Option iii is incorrect as the purpose of an inflation-control target is to increase transparency and predictability, not to hide policy actions from financial markets.

The Benefit of Adopting an Inflation-Control Target I